What Is Piecework? (With Conditions, Examples and Benefits)

Updated 23 May 2023

There are many businesses and individuals who may consider what employment type can maximise their efforts and produce the optimal return. One such form of employment is piecework, also known as piece rate, which provides wages based on overall output rather than hours worked. Learning about piece rate pay can help inform your decision on whether this is an employment type you wish to implement for a business or pursue as a professional. In this article, we explain what piecework is, outline some conditions of a piece rate system, describe optimal scenarios to use it and review its benefits.

What is piecework?

Piecework is a form of employment in which an employee receives payment based on the number of items produced, packed or picked. For example, a food production company may pay its packaging staff a set amount for every item they securely wrap and package. A fruit picker might receive a fixed piece rate for each kilogram of berries they pluck. While similar, a piece rate differs from a commission. Someone receiving a commission receives specific remuneration for the number of items they sell, whereas an individual on a piece rate accrues income from the measurable outcome they produce.

Conditions of a piece rate system

Here are some important conditions for businesses to consider before and during their engagement in a piece rate system:

Piece rate agreement

Before companies can engage in a piece rate system, they usually have to determine first what steps are involved in preparing a piece rate agreement for their industry. A piece rate agreement is a document that an employer and employee agree to that specifies the conditions of their piece rate arrangement. Specific rules and requirements of a piece rate agreement can vary by industry. As of October 2022, you can find information about current agreements on the Fair Work Commission website.

After an employer understands the piece rate specifications of their industry, the next step may involve talking with the employee. This is to make sure they're comfortable working at a piece rate and that the considered rate and how it's measured satisfies their salary expectations. Once both parties agree to the terms, they sign the document and each keeps a copy.

National minimum wage requirements

As of October 2022, businesses that pay their employees a piece rate are obliged to meet the national minimum wage requirements. This guarantees that employees receive payment for the hours they work each day. For example, a taxi driver might receive a piece rate for each customer they convey to their desired destination. If the driver only has two fares one day, despite working a full day, their employer is still obligated to pay them the minimum wage for the hours they worked that day.

This requirement is important because, without it, occupational health and safety issues may arise. For example, if the taxi driver in the example above only received a fixed piece rate for their fares, they might have to work over 12 hours to accrue the fares required to make minimum wage for that day. In this situation, the driver's fatigue could put their customers' safety and their own at risk. By knowing they're owed minimum wage for the day, the driver can register their departure from work at an appropriate time, minimising any health and safety risks from fatigue.

Piece rate arrangements exclusively for individuals

An important condition for piece rate work to function satisfactorily is that it usually has to involve individuals only and cannot include teams. This is because when employees operate as a team and work towards producing specified items, it's difficult to measure individual contributions.

For example, if a team of fruit pickers received a piece rate for the number of kilos of berries they picked each day, it's likely that some members might pick more than others. This may lead to team members who picked significantly fewer berries than others receiving the same payment as more productive employees. For this reason, it's an excellent idea for businesses that engage in a piece rate system to organise their piece rate agreements with individuals and not with teams.

When to use the piece rate system

Here are two scenarios where it's ideal for businesses to engage in a piece rate system:

When tasks are easy to measure

In some industries, such as horticulture, employees perform various tasks that are easy for a supervisor to evaluate how many units an individual has picked or produced. For example, at the end of each day, a fruit farmer usually has fruit pickers record the amount of fruits they've picked in kilograms. In this situation, because individual production is measurable, it's ideal for the employer to pay their employees a piece rate. This also encourages pickers to increase their productivity by picking more fruit, as they know that doing so can lead to a greater salary.

Tight deadlines

Another ideal situation for businesses to use a piece rate system is when they have to meet deadlines and require greater productivity from their employees. For example, a large textile company may have signed a lucrative deal that requires them to produce one tonne of specified apparel items within a six-month time frame. On average, the company might only produce 500 kilograms of these required items every six months, meaning they have to increase overall production by 100% to meet their target.

In this situation, establishing a piece rate agreement with the company's manufacturing employees could create an incentive for them to increase their productivity. For example, the company might pay the members of their production team a rewarding amount for each additional kilogram of apparel they produce. In a context like this, when a business has to meet tight deadlines, implementing a piece rate system can help them encourage their workforce to achieve objectives.

Benefits of a piece rate system

Here are some major benefits businesses and individuals can gain from engaging in a piece rate system:

Helps retain talented professionals

High-performing professionals are often in demand across industries. Because of this, companies that implement piece rates with their top performers may create incentives for them to remain with them for the foreseeable future. For example, a cabinetmaking business might offer one of its productive cabinetmakers additional income as a desirable piece rate for each cabinet they build. The cabinetmaker may appreciate the supplemental income and choose to show their gratitude by committing to the business and turning down employment offers from hiring managers.

Increases efficiency

In a piece rate system, overall efficiency typically increases because employees know that producing more units of work can provide them with a greater income. This can also lead to more efficient use of tools and machinery. For example, because employees who are on a piece rate usually focus their efforts on maximising their productive output, they typically require machines and tools to be well-maintained and functioning optimally. Any breakdown can delay productivity and consequently reduce wages. This can cause staff to take better care of equipment and use it with care.

Fosters fairness

Under a piece rate system, businesses are concerned with treating employees based on an objective measurement of what they produce. Employees in this system typically recognise that gaining praise and increased wages emerge almost exclusively from delivering results. This can help to eliminate any preferential treatment and instead foster a fair work environment wherein the most productive employees receive the greatest rewards.

Minimises supervision

Companies that engage in a piece rate system can find that they require less employee supervision. When employees are on a fixed salary, they may occasionally take needless breaks or slow down their productive output throughout the day, as they know they're scheduled to receive the same wage despite their productivity. This can require managers to oversee various duties and ensure staff are completing tasks on time. Piece rate systems often counteract this. Because employees under this system are self-driven to produce work and maximise their income, they rarely need supervising, as it's in their interest to remain productive.

What Is Piecework? (With Conditions, Examples and Benefits)